Euro-Dollar pushes through $1.15 on trade/deficit fears
A key call in our May ‘Global Market Watch’ was that the dollar would depreciate to trade in a$1.15-$1.20 range against the euro by the final quarter of 2025. This week the exchange rate pushed into this range, earlier than expected, reflecting concerns on US tariffs, the Federal debt/deficit and the administration’s dollar policy. Specifically, questions surrounding the Mar-a-Lago accord but now also the Republican’s Section 899 Budget Proposals that would allow President Trump to target foreign investors from countries deemed to be imposing unfair taxes on US companies. These factors should continue to weigh on the dollar through 2025, pushing it into the $1.15-$1.20 range against the euro. That said, as CPI inflation accelerates due to US tariffs, the current market view that the Federal Reserve will cut interest rates by 100bps by end-2026 will be tested, potentially providing some limited short-term support to the dollar.
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